Judge: Blaine K. Bowman, Case: 37-2023-00037507-CU-FR-NC, Date: 2024-01-05 Tentative Ruling

SUPERIOR COURT OF CALIFORNIA,

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SOUTH BUILDING TENTATIVE RULINGS - January 04, 2024

01/05/2024  01:30:00 PM  N-31 COUNTY OF SAN DIEGO

JUDICIAL OFFICER:Blaine K. Bowman

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Civil - Unlimited  Fraud Demurrer / Motion to Strike 37-2023-00037507-CU-FR-NC JAMS3LLC VS MURRAY [IMAGED] CAUSAL DOCUMENT/DATE FILED: Motion to Strike, 11/17/2023

Parties This lawsuit pertains to the sale of commercial property. Because the sellers were numerous trusts, a definition of the parties at the outset will assist with clarity in ruling on the motions.

--plaintiff JAMS3 LLC (Plaintiff) --defendant Beth A. Murray, Trustee of the Thomas M. Murray Trust dated November 12, 2009 (Murray) --defendant Exeter 7110, DE, LLC (Exeter) --defendants Darryl Perry Miller and Teresa Lynn Miller, Trustees of the Darryl P. Miller and Teresa L.

Miller Family Trust dated October 29, 1998 (collectively, the Millers) --defendants Henry Hohenstein and Allison Roberts, Trustees of the Hohenstein/Roberts Family Trust dated December 29, 1997 (collectively, the Hohensteins) Plaintiff will also be referenced herein as the Buyer. Collectively, the Hohensteins, the Millers, Murray and Exeter will be referenced herein as the Sellers. Given his special status as a focal point of the briefing, Darryl Miller will be referenced herein as Darryl.

RULING ON DEMURRER The Demurrer to Complaint brought by the Sellers is disposed as follows: --First Claim (Breach of Contract) – OVERRULED --Second Claim (Intentional Misrepresentation) – OVERRULED --Third Claim (Negligent Misrepresentation) – OVERRULED --Fourth Claim (Promise Made Without Intent to Perform) – OVERRULED --Fifth Claim (Breach of Fiduciary Duty) – SUSTAINED without leave to amend --Sixth Claim (Negligence) – OVERRULED --Tenth Claim (False Advertising) – OVERRULED --Eleventh Claim (Unfair Competition) – SUSTAINED with leave to amend The time to amend or otherwise plead shall be as set forth in California Rules of Court, rule 3.1320.

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3061024 CASE NUMBER: CASE TITLE:  JAMS3LLC VS MURRAY [IMAGED]  37-2023-00037507-CU-FR-NC Factual Background This is a dispute over a sale of commercial real estate – specifically, a medical office building. The medical office in question is located at 365 S. Rancho Santa Fe Road, San Marcos, California 92078 (the Subject Property). It is alleged that the Subject Property was owned by Murray, the Hohensteins, the Millers, and Exeter (Complaint 1, ¶ 8), though there is a slight difference between the allegations and the briefing as to whether the Trustee of the Thomas M. Murray Trust dated November 12, 2009 was Thomas Murray or Beth Murray. For purposes of the instant Demurrer, the Court regards this discrepancy as a sign that Thomas was the Trustee at the time of the transaction but that Beth has since taken over the duties of Trustee of that Trust and is currently the operative Trustee for purposes of this litigation. The various Sellers are alleged to have owned the Subject Property as tenants in common.

The allegations also describe Darryl as the 'Owner Manager.' (Complaint, ¶ 14 (emphasis added).) Plaintiff specifically alleges that it: 'is also informed and believes, and based thereon alleges, that Darryl was the agent for and had the authority to bind the other tenants in common to the Agreement.' (Complaint, ¶ 15.) Plaintiff's complaint lists a number of issues with the Subject Property that later gave rise to significant expense, including things like: --upgrade the Fire Service Detector Check Assemblies as ordered by the water district --fix the damages cause by a fire sprinkler flood in one of the dental offices --obtain approvals for the elevator from the California Department of Industrial Relations-Division of Occupational Safety and Health --fix damage from water intrusion and fix parts of the property that were allowing water intrusion whenever rain occurred --pay off a lien that resulted from upgrading certain telecommunications within the building In addition, Plaintiff alleges that the Subject Property had a certain 'stigma,' as it had previously been used to conduct abortion procedures. Plaintiff now asserts multiple causes of action, but they breakdown into four general categories of claims: (1) contract-based claim(s), (2) fraud-based claim(s), (3) negligence-based claim(s), and (4) statutory unfair competition law claims.

Merits of Motion – Preliminary Issues Two lynchpin issues help to close the analytical gaps when addressing the substance of the Demurrer to these claims. The first of those issues has to do with duty to disclose (as differentiated from a fiduciary duty), and the second has to do with agency.

With regard to having a duty to disclose, the Sellers seem to admit that they owed a general duty of disclosure, as they state in their reply brief: 'The Court of Appeal specifically held that the seller is obligated by a duty of disclosure, not a fiduciary duty, to disclose 'facts materially affecting the value or desirability of the property.'' (Reply, p. 6:24-25 (referencing the case of Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735).) As such, as to the simple negligence claims (as distinguished from any breach of fiduciary duty claims) it appears to be undisputed, at least as presently briefed, that the Sellers owed a duty – just not a fiduciary duty.

With regard to agency, it appears that Darryl was the individual who 'took the lead' so-to-speak in handling the sale transaction. As set forth above, the pleadings specifically allege that Darryl was the agent for the other Sellers and had authority to bind them. However, this allegation is made on information and belief. Legally, allegations can be made on information and belief as long as there is a reasonable foundation for the belief. Here, reading the allegations in context, there is nothing particularly unusual or out of the ordinary in the allegation that among the several seller-entities who shared ownership as tenants in common, one individual took on the role of 'owner-manager' to handle the transaction on behalf of the other co-owners. With the above two principles in mind, resolution of the Demurrer to the many causes of action is relatively straightforward.

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3061024 CASE NUMBER: CASE TITLE:  JAMS3LLC VS MURRAY [IMAGED]  37-2023-00037507-CU-FR-NC Merits of Motion – Contract-Based Claims (First Cause of Action for Breach of Contract) As to the contract-based cause of action, all parties were in privity with one another and, though certain documentary representations that were included as part of the transaction were signed only by Darryl, those allegedly-false documents were included in the transaction to which the other Sellers were a party.

The Sellers argue that 'the Complaint appears to allege a breach with specificity as to DARRYL, [but] no such facts were alleged against Defendants BETH, HOHENSTEIN, ROBERTS, TERESA, or EXETER.' (Demurrer, p. 3:16-17 (emphasis added).) However, specificity is not required in most pleading – with the notable exception of the pleading of fraud-based claims. As such, an argument that the allegations lack 'specificity' as to the other Sellers is unavailing as to a breach of contract claim. At any rate, Plaintiff has specifically alleged agency between Darryl and the other Sellers such that the admitted specificity as to Darryl would be sufficient even if specificity was required.

Notably, the Sellers also reference a failure to attach the contract at issue or set forth its operative terms that were breached. This is an old rule under Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 459, which relied upon Wise v. Southern Pacific Co. (1963) 223 Cal.App.2d 50, 59.

However, this rule has been abrogated by Miles v. Deutsche Bank National Trust Co. (2015) 236 Cal.App.4th 394, 401-402. 'Accordingly, plaintiff's failure to either attach or to set out verbatim the terms of the contract was not fatal to his breach of contract cause of action.' Id. As such, the Demurrer to the First Cause of Action for Breach of Contract is OVERRULED.

Merits of Motion – Fraud-Based Claims (Second Cause of Action for Intentional Misrepresentation) (Third Cause of Action for Negligent Misrepresentation) (Fourth Cause of Action for Promise Made Without Intent to Perform) As to the fraud-based causes of action, the Sellers' primary argument is that 'PLAINTIFF only alleges that DARRYL made fraudulent representations regarding the Property' – i.e. these representations are not alleged to have been made by the other Sellers. (Demurrer, p. 7:3-4 (italics added).) As set forth above, Plaintiff has sufficiently alleged that Darryl was the agent of the other Sellers, which overcomes the Sellers' argument at the first step.

However, the Sellers also correctly argue that fraud-based claims must be pled with particularity.

Notably, '[l]ess particularity is required in pleading matters of which the defendant has superior knowledge; e.g., allegations as to D's knowledge or notice or intent.' (Weil and Brown, California Practice Guide: Civil Procedure Before Trial (The Rutter Group, 2023) ¶ 6:121.5, citing Foster v. Sexton (2021) 61 Cal.App.5th 998, 1028 (emphasis in original).) Reading the pleading in context, the Sellers are in a position to have superior knowledge as to what agency they gave to Darryl to handle the transaction for them. It does not appear to be in dispute that the Sellers were, in fact, co-owners of the Subject Property. As such, in order to sell the Subject Property one would expect that the co-owners take at least some interest in how the sale is handled in order to protect their ownership interests and/or financial interests. If the Sellers did not convey agency to Darryl to handle the transaction for them and make representations on their behalf, such information will come out in discovery. As it stands, in this situation where Plaintiff has inferior knowledge of what was going on behind the scenes between the Sellers, it is sufficient that Plaintiff has alleged that Darryl made fraudulent representations to it, that Darryl was the point-person authorized to handle the transaction by the other Sellers, and that the other Sellers eventually signed-off on the transaction.

The Court further notes that the Sellers demur to the Fourth Cause of Action for Promise Made Without Intent to Perform on grounds of uncertainty under Code of Civil Procedure § 430.10(f). Demurrers for uncertainty are 'seldom sustained' and generally only apply when the allegations are 'so bad that defendant cannot reasonably respond...' (Weil and Brown, California Practice Guide: Civil Procedure Before Trial (The Rutter Group, 2023) ¶¶ 7:85-86, citing Khoury v. Maly's Calif., Inc. (1993) 14 Cal.App.4th 612, 616, also citing A.J. Fistes Corp. v. GDL Best Contractors, Inc. (2019) 38 Cal.App.5th 677, 695 (additional citations omitted).) Calendar No.: Event ID:  TENTATIVE RULINGS

3061024 CASE NUMBER: CASE TITLE:  JAMS3LLC VS MURRAY [IMAGED]  37-2023-00037507-CU-FR-NC As such, the Demurrer to the Second Cause of Action for Intentional Misrepresentation, Third Cause of Action for Negligent Misrepresentation, and Fourth Cause of Action for Promise Made Without Intent to Perform is OVERRULED.

Merits of Motion – Negligence-Based Claims (Fifth Cause of Action for Breach of Fiduciary Duty) (Sixth Cause of Action for Negligence) As to the negligence-based causes of action, the outcome on demurrer is different. As set forth above, it is essentially admitted (at least for purposes of the present motion) that the Sellers owed a general duty to disclose. The Sellers again argue that only Darryl made the alleged misrepresentations (or concealed the alleged defects that existed on the Subject Property). That argument was unavailing on the fraud claims, such that it is unavailing here. But, even if it were a successful argument on the fraud claims, the making of misrepresentations on certain transactional documents is qualitatively different from the concealing of facts that were required to be disclosed. In other words, even if it was only Darryl who made written (or oral) misrepresentations to Plaintiff, and even if those misrepresentations were made without the agency connection that has been alleged, the other Sellers as sellers and thus parties to the sale transaction owed certain duties to disclose – meaning that even if there was complete silence from Darryl the other Sellers owed a duty to disclose (at least as presently argued).

As such, the Demurrer to the Sixth Cause of Action for Negligence is OVERRULED.

The calculation changes a bit, however, with regard to the claim for breach of fiduciary duty. Plaintiff attempts to argue that the same general duty to disclose that was established in Lingsch v. Savage (1963) 213 Cal.App.2d 729, 735 imposes the duty of a fiduciary upon a seller of property. Fiduciary duties are reserved for close relationships of trust, such as when a professional takes on obligations to a client and is to put the needs and interests of the client above his or her own. The relationship of buyer and seller is an arm's length relationship. As such, Plaintiff has not provided any authority that would indicate that it is proper to impose a fiduciary duty upon the Sellers in this case.

As such, the Demurrer to the Fifth Cause of Action for Breach of Fiduciary Duty is SUSTAINED without leave to amend. While leave to amend is liberally granted under California law, the overall allegations describing the relationship of buyers and sellers in a commercial real estate transaction is such that there does not appear to be any way that the pleadings could be amended to state this cause of action.

The Court would consider deferring to the liberal pleading standard of granting leave to amend only if Plaintiff is able to appear and provide factual scenarios that it believes it can plausibly allege that may give rise to the imposition of a fiduciary duty. Otherwise, to the extent that this issue can be determined as a matter of law, multiple rounds of amendment to address a legal issue do not appear to be appropriate.

Merits of Motion – Statutory Unfair Competition Claims (Tenth Cause of Action for False Advertising) (Eleventh Cause of Action for Unfair Competition) Plaintiff alleges that the Sellers hired brokers to handle marketing and selling the Subject Property. Plaintiff further alleges that the representations made when marketing and selling the Subject Property were deceitful. The Sellers' argument on demurrer on this issue cites little legal authority, but advances the proposition that: 'if a False Advertising claim can be applied to typical commercial real estate transactions, then every breach of contract case would be subject to a false advertisement claim.

This is simply not the case nor the intention of the law.' (Demurrer, p. 13: 5-7.) If this is not the law, some case law authority to support this principle is necessary from the party bearing the burden, which, on demurrer, is the Sellers. The authority that the Sellers do cite focuses on whether members of the public are likely to be deceived by the advertising materials used to market the property. The Sellers argue that: 'PLAINTIFF fails to state facts sufficient to constitute a cause of action for False Advertising because PLAINTIFF failed to allege with sufficient facts that the public would be deceived by Calendar No.: Event ID:  TENTATIVE RULINGS

3061024 CASE NUMBER: CASE TITLE:  JAMS3LLC VS MURRAY [IMAGED]  37-2023-00037507-CU-FR-NC DEENDANTS' alleged advertising. Specifically, PLAINTIFF failed to alleged with sufficient facts that DEFENDANTS disseminated an advertisement to the public that was false or misleading.' (Demurrer, p. 12:11-14.) The Sellers then argue that: 'The alleged advertising from the PIS ('Property Information Sheet') and MDS ('Sellers Mandatory Disclosure Statement') consists of the same alleged false representations that were in paragraphs 65, 72, and 79 of the Complaint.' (Demurrer, pp. 12:27-13:1.) The Sellers appear to be making a factual leap.

Just because the alleged misrepresentations were made in documents that were part of the final transaction does not mean they were not also made in the marketing materials. Indeed, the allegation reads as follows: 'The advertising consists of representations and information concerning the Property described in materials published on the internet by Defendant Sellers and their real estate broker, the PIS and the MDS, as defined herein.' (Complaint, ¶ 114 (emphasis added).) The conjunctive 'and' indicates that the PIS and MDS are different from the materials that were allegedly published on the internet. On demurrer, the facts as alleged by a Plaintiff must be indulged. Therefore, while 'materials published' might not be terribly specific, it is sufficient for purposes of demurrer.

As such, the Demurrer to the Tenth Cause of Action for False Advertising is OVERRULED.

As to the cause of action for unfair competition, the Court notes that, legally, there are distinctions to be made between a claim for false advertising and a claim for unfair competition. (See Stern, Business and Professions Code Section 17200 Practice (The Rutter Group, 2023) ¶ 4:5, et seq.) The Sellers argue that: 'There is no 'business' which is the target of this cause of action. There are claims of misrepresentation with regard to a single transaction. That is not a business practice and no other instances of misrepresentations are alleged. Any such claim against individual owners simply has no basis in the law.' (Demurrer, p. 13:22-27.) This contention seems to be true.

Notably, Plaintiff's allegations as to unfair competition are quite sparse. (Complaint ¶¶ 119-120.) They do, however, purport to incorporate the preceding 119 paragraphs of allegations. While '...the trial court [has] no obligation to undertake its own search of the record 'backwards and forwards to try to figure out how the law applies to the facts' of the case...,' it appears from the gist of those 119 paragraphs that the Sellers are correct that the allegations in this case pertain to a single transaction – not to a wider 'business practice.' Quantum Cooking Concepts, Inc. v. LV Associates, Inc. (2011) 197 Cal.App.4th 927, 934. Though the Sellers did not demur to this cause of action on grounds of uncertainty, such that the sparseness of the allegations under the 'unfair business practices' heading is not quite at issue, the general gist of the allegations does not fit that of a claim for unfair business practices – at least not on the part of the Sellers who were only engaged in a single transaction. (See Code of Civil Procedure § 430.10(f).) As such, the Demurrer to the Eleventh Cause of Action for Unfair Competition is SUSTAINED with leave to amend.

RULING ON MOTION TO STRIKE The Motion to Strike brought by the Sellers is GRANTED without leave to amend. The time to amend or otherwise plead shall be as set forth in California Rules of Court, rule 3.1320.

As noted above, Plaintiff has pled multiple causes of action. By way of their Motion to Strike to Sellers seek to strike the following items, which specifically appear in the paragraphs of the Complaint that are under the Seventh Cause of Action for Rescission: --'plus the amount expended by Plaintiff to determine that the representations made by Defendants are false;' --'plus the value of the market appreciation of a comparable property from January 21, 2022 to the date of rescission;' Calendar No.: Event ID:  TENTATIVE RULINGS

3061024 CASE NUMBER: CASE TITLE:  JAMS3LLC VS MURRAY [IMAGED]  37-2023-00037507-CU-FR-NC --'plus lost profits Plaintiff would have made by using the idle medical equipment.' (Complaint, ¶ 100.) These are 'consequential' damages. The Sellers argue that a party cannot obtain consequential damages as part of a claim for rescission of a contract – the remedy for which is restoring the parties back to their original condition before the contract was formed. Plaintiff's opposition does not really dispute this precise point of law – i.e. the point that consequential damages cannot be awarded on a claim for rescission of a contract. Instead, Plaintiff's opposition notes that '[a] plaintiff is permitted to plead alternative inconsistent theories.' (Opposition, p. 6:6-7 (citations omitted)), and follows this point of law up with a contention that: 'Plaintiff has pled inconsistent theories but is only seeking one recovery.' (Opposition, p. 6:8-9 (emphasis added).) The Seller's response to this is an argument that: 'An action for rescission and an action for breach of contract are alternative remedies. The election of one bars recovery under the other.' (Reply, p. 3:26-28, citing Akin v. Certain Underwriters at Lloyd's London (2006) 140 Cal.App.4th 291, 296.) Both parties are correct. Plaintiff is correct that it is free to plead in the alternative. The Sellers are correct that Plaintiff may eventually have to elect a remedy because the law will not allow a plaintiff to simultaneously obtain a remedy for breach of a contract while also obtaining the remedy for rescinding that contract. The problem here is a contextual one in terms of how the allegation is being made.

Specifically, the damages that the Sellers are seeking to strike to not appear at the end of the Complaint in a generic 'prayer for relief' section – i.e. in a structural location where they could presumably be asserted if any of the underlying claims were to be successful. Instead, the remedies that the Sellers are seeking to have stricken are alleged in a manner that embeds them into the Seventh Cause of Action for Rescission. Because of this, Plaintiff's focus on pleading in the alternative appears to be a misdirect to other causes of action that might appear within the four corners of the Complaint when, in fact, the specific language to be stricken appears with regard to a specific cause of action in the Complaint.

Plaintiff has not successfully established, via citation of legal authority, that the specific cause of action at issue (rescission) supports the kinds of remedy that Plaintiff is seeking with regard to that cause of action (consequential damages). Absent such authority, Plaintiff's opposition appears to lack merit.

Because Plaintiff's argument appears to lack merit as a matter of law, the Court is not inclined to grant leave to amend absent an explanation or example from Plaintiff as to how the claim could be amended to support consequential damages.

Unless the ruling(s) above indicate that an appearance is necessary, parties who wish to submit, who are satisfied with the above tentative ruling(s), and/or who do not otherwise wish to argue the motion(s) are encouraged to give notice to the Court and each other of their intention not to appear.

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